Introduction to Ghana’s Economic Situation
Ghana’s economy has recently seen a significant improvement, with the cedi appreciating by over 42 percent so far this year. This reversal of the depreciation recorded in 2022 and 2023 is a positive turn for the country. The Bank of Ghana Governor, Dr. Johnson Pandit Asiama, has urged export-oriented businesses to reinvest their foreign exchange earnings domestically to sustain the cedi’s recent appreciation.
The Importance of Reinvesting Foreign Exchange Earnings
Dr. Asiama stressed that the more value kept within Ghana, the stronger the cedi becomes. He encouraged firms to invoice in cedis or reinvest their export earnings locally, as this not only reduces their own risks but also strengthens the economic ecosystem. The central bank plans to link public procurement preferences and credit access to evidence of reinvestment, particularly for Small and Medium-sized Enterprises (SMEs). Tax incentives are also being considered to encourage businesses to reinvest their earnings.
Challenges Facing the Cedi
Despite the current foreign exchange stability, there are structural issues that need to be addressed. One of the major concerns is the low domestic retention of export proceeds and the culture of dollar-pricing, which weakens the impact of foreign exchange gains. Many exporters hold their earnings offshore or fail to channel them into productive investment within the country, creating a mismatch between inflows and reinvestment.
Dollarisation and Its Effects
Dollarisation, particularly in the real estate and education sectors, remains a significant concern. The continued use of the dollar for local transactions undermines the cedi’s credibility. The central bank plans to step up enforcement of legal tender laws, especially in sectors where forex pricing has become normalized.
Managing the Cedi’s Appreciation
While the cedi’s strength has helped lower inflation and restore investor confidence, prolonged appreciation could hurt export competitiveness if not managed carefully. The Bank of Ghana Governor conceded that the central bank will adjust its policy stance based on evolving data and market conditions to ensure the cedi’s appreciation is sustainable.
Conclusion
In conclusion, Ghana’s economy is at a turning point, and sustaining the cedi’s recent appreciation will require a shift in corporate behavior and strategic planning. Export-oriented businesses must reinvest their foreign exchange earnings domestically to strengthen the economic ecosystem. The central bank’s plans to link public procurement preferences and credit access to evidence of reinvestment, as well as its efforts to enforce legal tender laws, are steps in the right direction. With careful management, Ghana can ensure the cedi’s appreciation is sustainable and beneficial to the economy.
